Daniel was the seventh Cylon humanoid model created by the Final Five, as revealed in the episode "No Exit".
Ellen referred to Daniel as an "artist, and so sensitive to the world". She was very close to Daniel, which enraged Cavil; he felt that Daniel was Ellen's favorite child and became jealous. Cavil poisoned the amniotic fluid being used to mature the Daniel copies and then corrupted Daniel's genetic code, meaning that no further Daniel copies could be created. Because of this, there were twelve Cylon models active throughout the series rather than thirteen.
Contrary to fan speculation, Ronald D. Moore has stated in the podcast for the episode "Islanded in a Stream of Stars" that Daniel is merely a plot device to explain the missing number and to expand on Cavil's character (noting that Daniel is essentially the Abel to Cavil's Cain), with Kara Thrace not being a Seven by any means. In the podcast for "No Exit", Moore described the Sevens as a springboard for Caprica, the BSG prequel, where Daniel Graystone is the name of a main character played by Eric Stoltz; this Daniel is the creator of the Cylons.